Discussion Highlights: Achieving 2023 Cost Savings

July 25, 2023 Executive Roundtable

The roundtable theme was what’s working and not working in the pursuit of cost savings in the current economic environment.  After the roundtable discussions, APD shared several approaches clients are taking to identify and secure cost savings in 2023. 

Highlights of the roundtable discussion are summarized below. 

  • Vice President of Global Supply Chain for an automotive casting and machining supplier shared that their spend is dominated by raw materials, and they are working to get as much on contract as possible, with language that protects their ability to pursue cost downs.  Their major effort to reduced costs has been consolidating spend after a major acquisition.   This includes indirect spend, where they are identifying categories that can be consolidated regionally or globally, including chemicals, gases, MRO, and casting suppliers.  They also have entered into 3-way agreements with customers and suppliers to pass supplier material surcharges to customers. 
  • CEO of a specialty vehicle engineering and manufacturing company shared that They are challenging their engineering team to design more efficient components, optimizing for cost.
       
  • Procurement Director for a dietary supplements manufacturer shared that they have long term partnerships with key suppliers, mainly distributors of Chinese ingredients.  Their focus is on redesigning products to deliver more value to customers while improving margins.  They have found that price negotiations with specialty ingredients suppliers who provide branded products have not been successful. 
  • Global Director of Supply Chain for an automotive braking and suspension supplier reported successful cost savings through negotiations with Chinese suppliers. They are also working on Value Analysis/Value Engineering (VAVE) efforts with North American suppliers. In the case of European suppliers, they are mainly focusing on cost savings driven by index-driven materials price changes. Additionally, they’ve negotiated reduced costs on inbound freight by capitalizing on fuel economies. 
  • Director of Strategic Sourcing for an electric control panels manufacturer shared that while supplier capacities are back to pre-covid levels, demand is 3-5X due to electrical grid improvement projects, and they are still seeing price increases from suppliers.  They have index-based pricing agreements on raw materials and are seeing some cost reductions. 
  • Group COO for an automotive exhaust supplier shared that they are working on a variety of initiatives other than cost reductions, including: 
    • Improving supplier payment terms from Net 45 to Net 60 
    • Optimizing stock in warehouses 
    • Standardizing on components that are more cost effective 
    • Localizing manufacturing to be closer to their customers 
    • Setting up consignment stock for PGM 
  • President of an automotive electronics accessories suppliers shared that they are shifting their focus back to Total Cost of Ownership after dealing with low-cost suppliers who couldn’t meet their quality and reliability requirements. They are in the final steps of moving their manufacturing from Florida to Mexico due to 50% labor cost savings.  They are also collaborating with a supplier building a plant in Taiwan to avoid tariffs on Chinese imports while maintaining proximity to strategic chip suppliers. 
  • VP Purchasing for an automotive sunroof supplier is consolidating their direct materials spend with supportive suppliers who helped during supply shortages. They are achieving significant reductions in freight costs and leveraging volumes through consolidated indirect purchases. They have also finding that some commodities, such as injection moldings and assembly equipment, are more cost-effective to source from China, even with tariffs.  

APD shared examples of projects conducted for client this year and set to deliver cost savings in 2023 and beyond: 

  • A valvetrain components supplier identified an annual saving opportunity of $750k (5%) through APD’s stampings market test. We reached out to 24 suppliers, and 6 provided competitive quotes. 
  • A specialty vehicle manufacturer achieved annual savings of $525k (8%) on same manufacturer/same part number items by replacing their MRO supplier through a strategic sourcing project. Further savings of 2% were identified using equivalent items from different manufacturers, to be implemented by the end of 2023. 
  • A construction equipment manufacturer achieved an annual saving of $315k (15%) through APD’s market test of wire harness suppliers. They plan to source additional parts at a similar savings rate. 
  • An automotive supplier partnered with APD for a strategic sourcing project to replace their corrugated packaging suppliers, resulting in $1.2M in savings (15%). Another company working with APD on corrugated packaging has identified a $360k savings (30%) on their smaller spend. 

In addition, APD shared examples of projects conducted by clients in the first half of 2023 during the 4-month Cost Management Certification training: 

  • An automotive supplier identified $1.5M savings (2%) on motor control units, keeping supply within the USMCA region.  They developed a should-cost model based on multivariate regression during the training and are working to implement the savings. 
  • An engine manufacturer identified $1.25M savings on a new warehouse as part of a make/buy study.  They created an open book cost model with the selected supplier and were able to identify exactly where cost efficiencies could be made. 
  • An automotive supplier identified $430k savings (40%) on 2 high volume seals.  They developed a should-cost model based on multivariate regression during the training and are now applying it to the rest of their seal portfolio. 
  • A manufacturer of power generation equipment identified $360k savings (10%) on a dual fuel kit.  They conducted a component cost analysis during the training and are working to implement the savings.